Nissan Motor Co., Ltd. (7201) Earnings Call Transcript & Summary

[Interpreted] Welcome, everyone, to the Nissan financial results for the third quarter of fiscal year 2023. We would like to begin the results announcement. Our today's attendee is our CFO, Mr. Stephen Ma. Please go ahead. Mr. Ma, CFO, will give you the results. Please go ahead.

Thank you, Hamaguchi-san. Ladies and gentlemen, welcome to Nissan's third quarter results for the 9 months ending December 31, 2023. Before addressing our results, I want to express my condolences for everyone impacted by the Noto earthquake. Our thoughts are with the families, friends and the communities affected. I also want to thank the entire Nissan team and partners for delivering steady results in the face of challenges. Let me begin with our third quarter highlights. Nissan delivered significant improvement on several measures. Net revenue increased by 22%. Operating profit rose by 65%, and net income more than doubled year-over-year. We have been encouraged by rising consumer demands for our products, and we have enhanced shareholder return by restoring the interim dividend and buying back shares. I will now turn to our third quarter results in detail. For the 9-month period, global retail sales rose by 1.2% year-over-year to 2.44 million units. Excluding China, we achieved growth of 20% as demand improved in key regions, including Japan, North America and Europe. Unit sales in Japan rose by 8.4%, North America by 30% and Europe by 17%. This helped offset the challenging market conditions in China, where retail sales declined by 35%. In terms of production, global output is flat versus last year. However, excluding China, production rose by 21% to meet the rising consumer demand. During the latest quarter, global retail sales decreased by 2.7% to 819,000 units, while excluding China, unit sales increased by 15% and production rose by 13% amidst demand for new models. Globally, quarterly production volume were 843,000 units. Though the third quarter volume was lower, our countermeasures to improve logistics capacity and the start of new model deliveries to dealership have already shown a positive impact on our sales performance in January. Therefore, we are confident to increase our sales in Q4. This slide shows our key financial performance indicators on both an equity basis and on a proportionate basis. On an equity basis, net revenue increased by 22% to JPY 9.17 trillion for the 9-month period. On the same basis, operating profit for the period increased to JPY 478 billion with a solid operating margin of 5.2% and an improved automotive segment profit of JPY 241 billion. Net income totaled to JPY 325 billion, and free cash flow for the automotive business rose to JPY 182 billion. Net cash was at a healthy JPY 1.33 trillion, even after restoration of our interim dividend and the share buyback from Renault. On a proportionate basis, including contribution from our China operation, net revenue rose to JPY 9.8 trillion. Operating profit was JPY 487 billion, representing operating margin of 5%. Given the fast-changing market conditions, this is a solid performance. In the home market in Japan, retail sales increased by 8.4% to 336,000 units. The main driver was the demand for the Serena, X-Trail, Sakura and DAYZ, especially the e-POWER versions of these models. The proportion of electrified models sold in Japan is more than half of our sale at 53%. Net revenue per unit increased by 13%, and production volume increased by 28.4% to 551,000 units. Nissan has continued to win awards for innovations, including Japan's Technology Car of the Year award for the Serena. In North America, overall sales increased by a solid 30% to 917,000 units. In the U.S., total sales increased by 25% to 663,000 units. This reflected a stronger demand for the Rogue, Kicks, Sentra and Versa. North American production increased by 33% to 913,000 units. Net revenue per unit in the U.S. declined by 6%. This was mainly due to a model mix change as market moved to more affordable segments and an increase in sales expense aimed at keeping our relative competitiveness in the face of escalating incentives by competitors. We are confident that in Q4, we'll experience increase in sales, led by the new model year '24 Rogue, as well as improved availability of models like Sentra and Versa as we improve logistics capacity. In Mexico, the company's fourth largest market, Nissan remains the leader for the 15th consecutive year. Turning to Europe, retail sales increased by 17% to 244,000 units. This improvement was driven by demand for our Qashqai, X-Trail and Juke and especially for the electrified versions of these cars. As a result, the share of electrified models were nearly half of our total sales in Europe at 48%. Net revenue per unit increased by 8%, and production volume increased by 17.8% to 244,000 units. Turning to China. The competition continues to be intense. There's a 26% following 9-month retail sales at 547,000 units, and we have responded with focused actions to help mitigate some of the industry challenges and enhance Nissan's competitiveness, including adjusting our incentives. In the fourth quarter of the calendar year, unit sales rose 19% year-over-year to 247,000 vehicles. Production also rose by 33%. The stronger fourth quarter performance meant that the calendar year retail sales reached 794,000 units, which is in line with our previous forecast. Nissan Sylphy has been a top-selling ICE model in the segment for 4 consecutive years with cumulative sales of more than 5 million units. Net revenue per unit for the period decreased by 8%. We are encouraged by the good sales in January, and we will continue to execute plans to strengthen our China performance. Turning to our 9-month financial performance. Net revenue increased by JPY 1.67 trillion to JPY 9.17 trillion. Operating profit increased by JPY 188 billion to JPY 478 billion, representing an operating margin of 5.2%. Nonoperating income, which includes [ agreement with the ] company, totaled JPY 62 billion. Our results were impacted by extraordinary losses of JPY 98 billion, which included impairment costs associated with restructuring in India. Despite that, net income increased by JPY 210 billion to JPY 325 billion. This slide shows the variance factors in the third quarter year-to-date. Foreign exchange had a negative impact of JPY 6.4 billion. Although the U.S. dollar remained strong, this was offset by emerging market currency and the effects for hyperinflation in Argentina. Raw material costs decreased mainly due to steel and aluminum over the 9-month period. Our sales performance had a positive impact of JPY 312 billion. This reflected strong volume and pricing actions partly offset by normalizing selling expenses across the industry. Monozukuri costs had a negative impact of JPY 80 billion, which reflect the retroactive payment to suppliers, inflationary pressures, logistics costs and regulatory expenses. Other items had total negative impact of JPY 82 billion. This included effects on normalizing used car prices and net credit losses in sales finance as well as other items. In this environment, our operating profit improved to JPY 478 billion due to a steady focus on Nissan NEXT strategic plan for long-term sustainable growth. Now I will turn to the outlook for the current fiscal year. Based on our retail sales performance in the first 9 months of the year, we have adjusted our volume outlook. We are managing the business by executing our strategy with discipline and have, therefore, adjusted downward our forecast for retail sales volume to 3.55 million units. This reflects challenges, including intensifying competition and logistics issue in most of our key markets. In China, sales reached 794,000 units, which is in line with our previous expectations. Nissan continues to focus on meeting customer demand with new models to improve sales efficiency while addressing logistics challenges and intensifying competition. In the fourth quarter of the fiscal year, we expect to see sizable improvements. Although the market remains competitive, we are taking appropriate action to navigate the challenging conditions, and we are on the right track. We are keeping our guidance unchanged for net revenue, operating profit and net income. This reflects the underlying strength of our business achieved in Nissan NEXT plan. However, we also recognize the uncertain environment in which we are operating, and we are taking necessary actions. We are currently evaluating the full impact of the Noto earthquake and geopolitical issues around the Red Sea. While we continue to assess these issues, we are keeping our guidance unchanged. In summary, these results have been achieved against a background of market volatility and fast-changing industry conditions. The strategic actions during the Nissan NEXT plan have made our company more agile and resilient. With these strong fundamentals, we are better positioned to navigate challenges and aim for long-term sustainable growth. We are also pleased by the strong reception of our new products as we continue our transition to electrification. To maintain our progress, we are finalizing our new midterm plan, which we will announce before the end of March. Thank you for your attention. I will now take your questions.

[Interpreted] Okay. Thank you for listening. [Operator Instructions] We would like to start the Q&A. Who is raising the hand first? Asahi Shimbun, [ Kondo-san ].

Do you hear me? This is [ Kondo ] of Asahi Shimbun.

[Interpreted] Yes. Go ahead.

Yes. Global sales volume and Renault's Ampere IPO was canceled, and these are the 2 questions that I would like to ask you. The first one is about global sales performance. In the beginning of this year, you shot for 4 million, but this was revised downward to 3.7 million. Today, you are bringing it down to 3.55 million units. Supply issue of semiconductor has been solved, but sales is not gaining momentum. You are not achieving the sales target, which you have set forth initially. How do you analyze it? How do you see the situation? And how are you going to address this challenge? And the second question, Renault, the other day announced to cancel the IPO of Ampere, by the way. So how do you perceive this change in the strategy by Renault including the amount of investment in Ampere? Will this mean that you need to revise your strategy of EV or electrification?

Thank you, [ Kondo-san ]. Thank you for your 2 questions. So as I mentioned, we are managing our business with discipline and very careful execution of what we have planned in Nissan NEXT in terms of principle, how to manage the business. And therefore, in light of that and especially given what's happening in China, we have revised down our full year forecast. This reflects challenges, including intensifying competition and logistics issues around our key markets. So more specifically, I think in the U.S., we have been taking it down slightly versus the number we had in November, mainly due to the congestions behind logistics between the U.S. and Mexico. So we were not able to get our cars to the market at the right time with enough volume. So to address this issue, we actually have been able to secure more capacity via land and also via sea for the fourth quarter. So as we are talking right now, we are already delivering the very nicely new model year '24 Rogue and Sentra, and they're already in the dealerships. So we are expecting to see quite a bit of improvement in Q4 in the U.S. market. So Q3 was mainly the availability in U.S. So in Japan in Q3, actually, our sales is on track -- is improving roughly 4% versus last year Q3. So it's on a healthy growth. And as you remember, first half, we had some supply shortages in Japan. We were hoping to recover most of that in Q3, but the recovery was not fully as expected. In addition, we actually had a lot of customers who like our cars very much, and they wanted to wait for the new Note and DAYZ, which just arrived at dealerships. So we're already selling the new DAYZ and Note in January, and the sales are at a good pace right now in -- early in January. So I'm not worried also about Japan in Q4. So U.S. and Japan, we have a good action for Q4. And same thing for Europe, we had similar supply and logistics problem in Q3, but most of that have been resolved. Of course, given the situation now with the Red Sea and geopolitical issues in that region, we are monitoring very carefully. But we have a visibility that we should be also have good improvement versus Q3 in Europe market as well. So given what we know of these key markets, we want to give you a more realistic outlook of that full year volume. And as I mentioned also, we are still quantifying or to monitoring or assessing the full impact of the earthquake and the Red Sea transportation issues. So already, we are considering what to do, and we are trying to mitigate as much as possible for Q4. For your other question, which is Ampere and the investment, let me say this. I think, first of all, we have a pretty good partnership with Renault. And things are working very well right now. And all of our collaboration projects with them are on track, especially the new compact EV, which will actually be developed by Ampere. So as we said before, the investment opportunity in Ampere is really complementary and strengthens Nissan strategy in the European market as that market is moving towards electrification. So we will continue to discuss with Renault and to discuss what to do going forward. I'm looking forward to also more collaboration with them. Thank you.

[Interpreted] Did that answer your question, [ Kondo-san ]?

Yes.

[Interpreted] Okay. Moving on to the next question. NHK, Noguchi-san.

This is Noguchi from NHK. And I have 2 questions as well. Starting with the first one, earlier, you referred to this, which is about Noto Peninsula earthquake impact. Partially, you make adjustments on the production volume. That's what I'm aware of, like parts supply is delayed and also -- that's what I understand. Where are you with the production adjustment as of? And what's the visibility going forward when it comes to the parts supplies? Could you elaborate on this point? That's my first question. And there's another question. The spring labor bargaining, how are you going to approach this? The other day, there was an announcement saying that the labor union of Nissan Motor will demand a record monthly pay increase. It's a draft now that has been publicized, right? And now the prices are rising across the board, and wage increase is what the entire society is paying attention to. So what's Nissan's approach to spring labor offensive? These are the 2 questions.

Thank you, Noguchi-san. So as mentioned, first, I want to express my condolences to all the people who are impacted by the Noto earthquake, and our thoughts are with everybody who are affected. So our production facility in Japan, Nissan -- are operating as scheduled in February. And we are making some minor production adjustment on some models in February because of this. We don't yet have a full estimation of the total impact yet. We are still very carefully monitoring the situation. But for our -- majority of our Q4 sales, we have enough in terms of making production and the sales to meet those numbers. So we will look at really the full impact. I'm guessing the more impact will come from delayed impact going to the future months. I say whole supply chain is affected. The second question is about the wage increase. As always, we have -- we are entering into the spring negotiations. And we have -- as always, we've reviewed and revised wages comprehensively, taking into account all the impact of price fluctuations, cost of living and other factors. And this doesn't change. And we are looking very much forward to discussing and working with our union partners. Thank you.

[Interpreted] Okay. Thank you so much. Moving on to the next question. Nikkei Shimbun, [ Kawakami-san ].

This [ Kawakami ] speaking. I have 2 questions. The first one is about North America. Lately, American carmakers, the EV is slowing down in the entire market, but the hybrid sales are very strong. And there's a big gap between Nissan and the rest of the competition because -- including the mix improvement. Going forward, how are you going to approach the U.S. market? That's my first question. And the second one is about China. You are picking up your sales but this fiscal year, the new cars were introduced. And how was the impact of the new cars that were introduced recently this year? And how are you going to reverse this trend going forward?

Thank you, [ Kawakami-san ]. So for U.S. -- currently, our outlook for U.S. -- based on what we're hearing from various analysts and experts, U.S. market seem to be still going on very strong. And they might be able to avoid a recession or very -- at worse, maybe have a mild recession. So market is -- demand is still very strong. But the high interest rate inflation is sort of hampering the affordability of the customers. So we are focused on making sure that we bring the right vehicles in those right segments to customer. But your question is more about EVs and hybrids, if my understanding is correct. And yes, the -- as we always said throughout the last few years in our electrification strategy, the customer decide the speed of electrification. So we are trying to make sure we provide the offering to customers when they want to buy a car and choose a car. So for us, EV -- electrification growth is not a linear growth, meaning it's not a straight line. It will go up and down. And -- but long term, it will grow. So given the long-term growth prospects, we are also right now investing into making sure we bring the right product to the market. For the current -- currently, as of now, we are focusing for the short term to help making sure that the LEAF and the Ariya, which are EV offerings in the market, will succeed, and we are using that to meet the EV demand in the U.S. market. And then for longer term, we want to make sure that we are working on bringing more innovations to our electrified powertrains, so we can provide the right combination of value and technology and performance to our customers. So we are discussing to bring more products and options to the U.S. market. For China, your question is about the sales and the plan and the progress of a new model. So as you saw, we aim to stay in China, and we want to be a relevant player and a sizable player in China. So we make sure that we adjusted our go-to-market strategies, and we shifted our tactics to be more focused on key segments and key geographies within China. And this adjustment in our sales strategy paid good results in Q4, as you can see by the growth. So I think we are on a good track. And from what I've seen in January sales, also very encouraging results. So we are on a good path so far. And I believe the last form, even maybe 5 months, we have consecutively month-over-month growth, which is a good encouraging sign. As for the new vehicles, right now, we have launched new ICE vehicles, and they're doing okay, and people are starting to accept them more, including the X-Trail e-POWER. So customers are starting to understand the product and also the sales are improving. For the new energy vehicle that we mentioned last time, those will come -- the first one will come later in this year. So they have not yet been launched. So that will come later in this coming year. So we have a plan for China, and we are expecting to execute that plan. And so we ask that you be patient and you can watch our results. Thank you very much.

[Interpreted] Okay. Thank you so much. Next question, Misno-san, Yomiuri Newspaper.

I have 2 questions, Mr. Ma. First, China. We have been cut off -- there has been a significant drop year-on-year. But in January, 40% growth had been achieved. What were the reasons behind? What was the strategy that had led to this good result for January? Is this onetime off trend? Or what is the mid- to long-term outlook? Second, U.S. business environment. The former President Trump may win the upcoming presidential election. If that happens, what would be the strategy of Nissan? Or how will you be prepared for the second Trump administration? Those are my 2 questions.

Thank you, [ Misno-san ]. So for China, as we mentioned -- as I mentioned, we changed and we updated and refined our go-to-market strategy. So we focus on very key segments and very key geographies where the customers are still very, very much valuing the quality, the values of Nissan brand vehicles. And that strategy, we went to those markets with enhanced competitiveness in terms of the net pricing. So that seemed to play very well with the market. And we were able to regain the share in many key geographies where the electrification, as you know, on the coast side or the major city were faster. But on the inland or other provinces or in Tier 3 or 4 or 5 where there's less electrification, we were able to regain a lot of our sales in those markets. And the customers obviously appreciated the offers, and we were able to see improved sales. So that's really what happened in Q4, and we are continuing this strategy in Q1, and it seemed to be also working very well. So that's for China. For U.S. presidential election, please, you have to forgive me, but I don't think we should be commenting on politics. So I will refrain from commenting on what will happen based on policy or politics. But for us, as always, Nissan will make sure we will adapt to whatever changes in the environment in the market. And I think after we have changed the culture and the business way of doing things within Nissan -- on the Nissan NEXT plan, we are much more agile and responsive to any market changes. So however the market change or policy change or whatever might come, we will make sure we are agile and respond appropriately and accordingly to the market. Thank you, [ Misno-san ].

[Interpreted] Okay. Thank you. Moving on to Toyo Keizai, [ Inui-san ].

Yes. Do you hear me?

[Interpreted] Yes, we do.

Toyo Keizai, [ Inui ] speaking. I have 2 questions, too. The first one is about the production. Compared to last year, this year, semiconductor supply issue has been resolved and sales are growing, I believe. But immediately, there are production bottlenecks that we -- you continue to face. What is -- are you getting rid of the backlog already? Or is it increasing? Which is it? Could you give us the status of the backlog? And the second one is this year, the full year guidance, the volume compared to last time was revised downward, but on the other hand, the profit remains unchanged, financials remains unchanged. What's behind these numbers?

Sure. Thank you, [ Inui-san ], for the question. So production, as you mentioned, the semiconductor supply issue has improved significantly. So we're no longer as affected by that issue. So almost resolved. There are, once in a while, some bottlenecks on certain key parts or certain critical parts for us, but these are getting smaller and smaller. So it's almost resolved. As a result, we had, as you pointed out, many back orders from customers in some key markets, especially in Japan and in Europe. And as we are improving the supply, we've been able to fulfill some of those orders. And so the backlog is reducing and it's getting better. And also in Japan, I believe we have reopened orders for many vehicle whereas before we couldn't. So the situation is improving quite nicely. And I think in Q4, I think the supply is getting much better. So I'm quite encouraged by what I already see in January in terms of some of the situation in terms of supply. For the full year, the question is about why volume is down but the profit remains unchanged. So the profit estimation, of course, the volume has some negative impact as we reduce the full year volume. So it has some negative impact. But we were able to offset via 2 other factors. One, I didn't mention it clearly, but in the notes you can see, we updated the yen assumption, FX assumption in Q4 to more realistic JPY 145 to the dollars. So that will give us a little bit positive contribution. And secondly is we also have been making sure that with the volume down, we also try to limit any inflationary cost increase or keeping strict and disciplined management of our costs in all the areas. So we were not -- we were able to not spend as much by spending in the right areas like R&D and marketing, et cetera. We are making sure we spend it, but other areas, we're making sure that we don't spend as much as we originally thought we would. So that's a simple answer to your question. That's how we were able to control the profit but -- even though the volume is down a little bit.

[Interpreted] Okay. Thank you so much. Last question from the floor, Nikkei BP, [ Yaku-san ].

Earlier, you talked about electrification. I have an additional question about electrification. Battery EV is in transition and hybrid is growing globally significantly. But in your case, you have e-POWER version. What's the sales performance of e-POWER-equipped vehicles? Because in the case of Nissan, including BEV, you see -- you show us electrification ratio in Japan and Europe. This includes e-POWER, right? And -- but what's the sales performance e-POWER in each region? And how do you assess the situation? That's my question.

Yes. I think -- thank you for the question. e-POWER, as you know, in Japan is very, very well received by customers. It's actually doing very well. The Serena e-POWER is -- majority of Serena is by far e-POWER, and they choose -- the customer really love the performance and the quietness and the value it brings. So it's doing fantastic. In Europe, we were able to offer X-Trail e-POWER, Qashqai e-POWER and also hybrid Juke in Europe, and those were especially popular with the market over there. So as far as e-POWER and hybrid in these markets, they're doing as we wished and is doing very well. In the U.S., as you pointed out, this change to hybrid was a more recent phenomena. It's happened in the last few months, quite a bit of a change to hybrid as customers were worried about the EV certain points, and they wanted something in between and therefore, hybrid got better. So we are now studying what we can do for the U.S. market as well. So please stay tuned. We will come back with some answer on what we're going to do with the hybrid in the U.S., okay? For the other markets globally, we have already plans to introduce e-POWER to many other markets. And some of the markets, they are enjoying very good support and benefits and the reaction is very, very positive. In Latin and South America, for example, very, very strong positive reaction to our e-POWER introduction that some of it already started and some will come more later in the year. So I would say e-POWER, customer understand and they drive and the test-drive it, they really like it and that we have good plans for it going forward. Thank you.

[Interpreted] Okay. Thank you for asking many questions. With this, we would like to conclude the session. Thank you for joining. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]